An update has been released today on Virgin Media (VMED), in which senior media analyst Ann Northrop, CFA is restating her Hold rating on the company. We excerpted the following details:
'Virgin Media is, in our view, in the early stages of a turnaround, poised to generate strong free cash flow growth and improved EPS in 2007 and 2008. A new management team is re-branding the services, formerly notorious for poor customer service and rolling out digital services to stabilize average revenue per user (ARPU), reduce churn and slow its market share drain from the onslaught of new entrants into VMED's markets.
'On the cost side, we expect lower interest expense, capital expenditures and income taxes to triple free cash flow in 2007. The stock is currently trading at a steep discount to chief competitor BSkyB (BSY), and its other cable peers, a discount that we think will narrow over the year as profitability improves or management pursues a sale of the company, which is currently being evaluated.
'On November 7, 2007, VMED reported 3Q07 financial results. EBITDA fell short of our expectations as ARPU continued to decline faster than we expected, eroded by price cutting, an attempt by the company to stave off competition. The current dividend yield is 0.7%. ARPU in 3Q07 was GBP 41.55, down from GBP 42.16 in 2Q07 and GBP 41.57 in 1Q07. However, with the exception of ARPU, operating metrics generally improved. Churn declined 10 basis points sequentially to 1.7%. Total revenue generating units (RGUs) reached 10.72 million, up 2.3% from 10.58 pro forma in 3Q06. All considered, we rate the stock as Hold.'
Read the full analyst report on VMED.
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